Is Student Housing Right For You?
There are always two sides to every coin. If you are in the real estate business long enough you will find there are many different ways to build a portfolio. Some investors strictly stick to quick flips and rehabs while others look for long term buy and hold properties. Within the buy and hold segment you have student housing rentals. These are properties located in close proximity to a college or university that rent primarily to college students. For every investor who sees the upside in these properties there are those that run away from them as quickly as possible. As they say, beauty is in the eye of the beholder. Student housing can be a great addition to your portfolio or a time consuming nuisance that is more trouble than it is worth. Here are a few pros and cons of student housing rentals and some insight as to whether or not they would work for you.
The biggest advantage of a student housing rental is the dramatic increase in rents received. Properties within a few miles of a major college or university are always in high demand. There are many schools that require upperclassman to live off campus. If the demand for rentals is strong a landlord can up their price 20-30% or more. Over the years this can equate to thousands of extra dollars in rent received. You also have the ability to catch the students as juniors almost guaranteeing they will live in the property for at least two years.
A student housing rental does not need to be decked out to the nines. This doesn’t mean you can neglect the property but it does not need a complete overhaul ever year. You can supply the property with a basic amount of furniture and avoid any major renovations annually. This allows you to reduce your maintenance costs and get better quality appliances and other items that can hold up to the wear and tear.
A well run student housing property should also have little trouble finding new tenants. Even with annual turnover keeping your property filled is not nearly as difficult as the traditional single family rental. Through word of mouth alone you should keep the rental cycle going for as long as you want. Something as simple as a sign in the front yard is often enough to get your phone ringing and find your next tenant.
Student tenants can be a blessing and a curse. Depending on the group of students you rent to your phone may either ring off the hook or you may never hear from them during the lease. Neither option is very appealing. However in most cases the lease is backed by the students’ parents meaning you don’t have to chase your rent from 19-20 year old kids. An off campus rental is usually much cheaper than anything they can find living on campus. This works out to be a win-win for everyone involved.
Renting to college students is exactly how you think renting to 19 & 20 year old students is like. Even the best college tenants will cause some damage to your property. Through no fault of their own there will be wear and tear to the couches, holes in the closets and the occasional clogged toilet. It is a good idea to hire a dedicated property manager when dealing with a student rental. This will eat into your monthly cash flow but will make your life much easier. You don’t want to have to deal with phone calls at all hours of the day. Student renters are almost always first time tenants which means they do not have any experience running a home. If there is even a minor issue with the property their landlord will be the first one they call.
A big concern renting to college students is the hidden damage they cause to the property. In spite of your repeated requests to inform you of any minor issues inevitably they cannot be bothered. A running toilet can end up adding hundreds of dollars to your water bill. A damp basement can eventually lead to mold. A small problem with the washing machine can eventually cause it to stop running. These smaller problems lead to you spending more money taking care of the property over the years.
A final problem with students is the noise. When they sign the lease your tenants will tell you that they are focused on their academics and can’t be bothered with partying. This may be the case a majority of the time but all it takes is one party to cause a problem. Not only can tenants cause major damage to your property but they can be a problem for your neighbors. Your neighbors will call the police who will eventually call the town. If there are too many problems you may have a difficult time getting your student housing license renewed. Most towns require annual approval to rent to students. Too many noise or property appearance complaints can cause your renewal to be rejected.
Student housing rentals are not for every landlord. You need to have the right temperament and be willing to embrace whatever comes your way. However the right property in the right location can be a real goldmine.